(General info only—I’m not a CPA or attorney. I’ll happily coordinate with your pros.)
1) The big exclusion (home you lived in)
- Up to $250,000 (single) or $500,000 (married filing jointly) of gain can be excluded if you owned and used the home as your primary residence for 2 of the last 5 years before the sale.
- You can usually use this exclusion once every two years.
2) Surviving spouse rule (timing matters)
- If a spouse passes, the survivor may still use the $500,000 exclusion (instead of $250k) if the home sells within two years of the spouse’s death and other requirements are met.
3) Your “basis” (what you subtract from the sale price)
- Start with what you paid for the home.
- Add: major improvements (roof, kitchen, windows), certain closing costs, and some selling costs (commissions, staging, escrow/title fees).
- Result = Adjusted basis. Your gain is sale price – adjusted basis (before applying exclusions).
4) Step-up in basis (after a death)
- When a homeowner dies, heirs often receive a step-up in basis to the home’s fair market value on the date of death (rules vary by state and how title was held).
- Practical effect: if the heir sells soon after, little or no capital gain may be due.
5) Partial exclusion (life happens)
- If you don’t meet the full 2-of-5 rule due to health, job change, or unforeseen circumstances, you may qualify for a partial exclusion. Ask your CPA.
6) Sold a former rental or second home?
- Primary residence rules are different from rental/investment rules.
- Depreciation recapture (if it was a rental) may apply.
- Exchanges like 1031 are for investment property, not a primary residence.
7) Quick documentation checklist
- Closing statements (purchase & sale)
- Receipts for capital improvements (not regular maintenance)
- Proof of occupancy (driver’s license, voter reg, utilities)
- If applicable: date-of-death valuation and paperwork, community-property/trust docs
- If prior rental: depreciation schedules, prior returns
Bottom line
A little prep can save a lot in taxes. If you’re even thinking of selling in the next 6–12 months, loop me and your CPA in early so your records and timing support the best outcome.
